Here’s a rundown.
Some companies view their summer intern programs as trial runs for permanent positions. If an intern works out well, the company may offer to hire the person following graduation.
You may be eligible for a tax credit if you hire from a specific category of individuals. The work opportunity tax credit, which is claimed on Form 5884, is a dollar-for-dollar reduction of federal income taxes up to $1,200 (40% of the first $3,000 in wages if the youth works at least 400 hours for you).
To qualify for the credit, you must:
- Hire someone age 16 or 17 years old who lives in certain federally-designated areas. This youth must not be your relative and did not work for you last year.
- Employ the worker between May 1 and September 1. Wages paid before or after these dates do not count toward the credit.
- You and the youth must sign IRS Form 8850 and submit it to your state workforce agency within 28 days of the first day of employment so that the agency can certify your eligibility for the credit.
As with any employee, you have the responsibility to see that there is adequate training. The failure to do this can create problems in your business.
And there are also the payroll costs (e.g., wages, payroll taxes). You can check the going rate for summer interns in 2019 at Indeed. Rates vary with the work that the intern is doing and the location of the business; the average is reported to be between $12.19 per hour and $15.62 per hour.
Some companies erroneously think they can get free help by using unpaid interns for the summer. However, the use of unpaid interns is permitted—and does not violate the Fair Labor Standards Act—only if a “primary beneficiary test” is satisfied. Under this test, an employment relationship is not created when the tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.
The Department of Labor lists the following factors used for the primary beneficiary test; no single factor is determinative:
- There is a clear understanding that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The employer provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
If you have any concerns about setting up an unpaid internship or using a paid intern this summer and you don’t have an HR department in house, check with your attorney to make sure you’ve covered your bases.
Barbara Weltman is the founder of Big Ideas for Small Business, Inc., which publishes Idea of the Day. She is the author of J.K. Lasser’s Small Business Taxes 2019 and other books that inform the small business community of tax, financial, and legal information they should know about.